With fewer than 100 days until the midterms and President Biden’s approval rating underwater, Democrats are desperate for a political win they can trumpet on the campaign trail. They’re hoping the deceptively named Inflation Reduction Act is it.
At the center of the bill is $64 billion in subsidies for health insurance purchased through Obamacare’s exchanges. They’re an extension of the subsidies created as part of the 2021 American Rescue Plan Act. They were supposed to expire at the end of this year—temporary measures to help households weather the economic impact of the pandemic.
But if that happened, people would’ve received notices of massive premium hikes just before they headed to the polls. Hence, the Inflation Reduction Act’s move to extend them for three more years, through 2025.
It’s a transparent ploy for votes. And it obscures just how much the Affordable Care Act has failed to live up to its name.
Average individual market premiums more than doubled between 2013—the year before most of the Affordable Care Act took effect—and 2019. Obamacare largely hid these rate hikes for people making less than 400% of the poverty level, who were eligible for subsidized coverage.
But the average monthly unsubsidized premium reached $589 in 2019. Add on a deductible—routinely north of $5,000 for self-only bronze coverage—and a person is looking at spending more than $10,000 before his or her insurance coverage even starts to kick in.
That’s tough to swallow for someone making $55,000—just over four times poverty.
Democrats have responded to this affordability crisis not by addressing Obamacare’s structural flaws but by throwing more money at it. The American Rescue Plan Act boosted subsidies for those with incomes below 400% of poverty. And it capped what people with incomes above that level paid for coverage at 8.5% of income—making them eligible for federal assistance for the first time.
The upshot is that taxpayers have been subsidizing coverage for people with healthy six-figure incomes for the past two years. As research from the Galen Institute has detailed, a family of four led by a 60-year-old who makes roughly $130,000 qualifies for more than $19,000 in health insurance subsidies. A family of four earning ten times poverty—more than $277,000—could claim well over $7,000 in government assistance.
This wasteful spending is compounded by the fact that nearly 75% of spending on enhanced subsidies has gone to people who already had health insurance. In other words, the subsidies are not helping people who lost their jobs and coverage during the pandemic. They’re displacing what had previously been private spending with government spending.
So the subsidies aren’t just largely unnecessary—they’re inflationary. According to the Department of Health and Human Services, households with subsidies pay only 15% of the cost of their premiums on average. Those subsidies cushion the sticker shock they might otherwise experience from rate hikes and reduce pressure on insurers to compete on price.
The subsidies also give households more discretionary income to spend on goods and services in short supply, fueling inflation throughout the broader economy.
Exchange insurance premiums are projected to rise more than 8% next year. That means the subsidies will grow, too.
Employers may look at those ever-growing subsidies—and their own ever-growing health bills—and decide they’d be better off dropping coverage and sending their employees into the exchanges. They could even raise wages to account for the savings accrued from axing the company plan.
That’s less than ideal for taxpayers. But it’s a win for progressives who want to make ever-more Americans dependent on government for health care. If more people end up in the exchanges, calls to make the enhanced subsidies permanent will grow louder. The cost of that would be nearly $250 billion between 2023 and 2032.
Democrats have shown they will use any crisis—the pandemic, inflation—to cover up Obamacare’s failures and protect their electoral fortunes. Don’t be hoodwinked.